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Practical Guidance®

Water for Real Owners

A Practical Guidance® Practice Note by Eric Garner and Maya Mouawad, Best Best & Krieger LLP

right only establishes a use right, not fee of the body of the . Absent a use or prospective use that falls within what the state considers reasonable and beneficial (each state has its own version of this concept), a Eric Garner cannot be held speculatively and, if not put to reasonable Best Best & Krieger LLP and beneficial use, may become available for use by others in order to prevent of this limited natural .

For an overview of state applicable to water rights, see Water Rights State Law Survey. For an overview of preliminary steps for purchasers and developers to take when considering the purchase or development of property with Maya Mouawad water on, under, or adjacent to the , see Water Rights Best Best & Krieger LLP and Uses Checklist. For more information on water rights generally, see Powell on § 65.02 et seq. and This practice note discusses key considerations in analyzing Nichols on § 13.16. water rights. It provides guidance on determining water rights generally and those associated with real specifically, acquiring water rights from a state regulatory Determining Water Rights or permitting authority, and transferring water rights among Generally and Those water right holders. It also outlines special considerations for water rights in California. This practice note is written from Associated with a real property owner’s perspective, but discusses issues concerning water rights that are not associated with property Water Rights, Generally ownership as well. State and local laws, regulations, and Water rights and the extent of use of a water right are practices relating to water law vary from state to state, with regulated at the state, regional, and local levels. Water rights major substantive consequences. Additionally, the extent of applicable to real property owned by the federal government water use under a certain water right may be limited by state, and by Indian tribes are exceptions to this general rule and regional, and local rules and regulations. As such, you should are outside the scope of this practice note. There are also consult counsel advising on water law matters for guidance special considerations for water used for municipal and on state-specific laws and regulations. industrial purposes under a water right owned by a water provider, such as a publicly or privately owned water utility Water rights are different than rights in real property in that or a mutual water company. A detailed discussion of those typically the government of the state holds all the considerations is also largely outside the scope of this note. of the state in trust for the people of the state. A water Generally speaking, water rights are more important in the As mentioned above, rights to surface and may Western region of the because of its more arid be subject to limitations imposed by the state. In addition, conditions and limited water supply. California has what is further limitations on use of the water may be imposed likely the most complex water right allocation system in the by local agencies statutorily authorized to discretionarily world, containing elements of systems that are applicable in impose certain limitations on water diversions, pumping, virtually all jurisdictions, so illustrations from its laws are used and use. For example, extraction of groundwater in throughout this note. Examples from other western states, California was largely unregulated until the Legislature such as Oregon and states, are included as well adopted the Sustainable Groundwater Management Act for illustrative purposes. (SGMA), Cal. Water Code § 10720 et seq., which became effective January 1, 2015. It was the last state to adopt Please note that comparative water law information provided statewide groundwater regulations. SGMA requires that all in this practice note is only illustrative, and is designed to high-priority and medium-priority groundwater basins, as highlight the diversity and specificity of state laws governing designated by California Department of Water , water rights. It is not intended as a comprehensive analysis of be governed by one or more groundwater sustainability those laws. It is essential to consult with local legal counsel in agencies (GSA) and that each GSA develop and adopt a the particular state where the water right is being examined. comprehensive groundwater sustainability plan (GSP) or an alternative to such a plan. Among other things, SGMA Analyzing Water Rights grants GSAs authority and enforcement tools, such as the Analyzing water rights begins with identifying the following ability to assess pumping fees, make pumping allocations, and key facts: order pumping cutbacks in order to help bring the basin into balance within the SGMA deadlines. Other states also have • Source(s) of the water long-standing regulatory regimes applicable to groundwater • Location of the water use –and– rights. In Oregon, for instance, the Oregon • The intended use of the water and its historical use, if any Commission may impose restrictions on extractions to both existing and new groundwater uses under certain conditions, Source(s) of the Water regardless of the priority of the water right. Or. Rev. Stat. § Identifying the source of the water is important in 537.740. determining the associated type of water right and the extent Certain waters carry special rights. For example, in California, to which the right may be exercised. Many states, including the owner of a wastewater treatment facility acquires “the California, divide water into and groundwater exclusive right to the treated waste water as against anyone and different legal regimes apply to each: who has supplied the water discharged into the waste water • Surface water. California defines surface water general as collection and treatment system” subject to the treatment water in a “stream, lake or other , . . . and [] owner’s “obligations to any legal user of the discharged subterranean streams flowing through known and definite treated waste water.” Cal. Water Code § 1210. Similarly, an channels.” Cal. Water Code § 1200. importer of water that would not otherwise be in the basin has the exclusive right to use that water. The right extends • Groundwater. Groundwater is underground water that is to the return flows (imported water that enters the basin not included in the definition of surface water: “all water after use) of the imported water, including return flows that beneath the surface of the earth within the zone below the percolate to groundwater, the rationale being that the party water table in which the is completely saturated with that expended the effort to bring the water to the watershed water, but does not include water that flows in known and should be entitled to the fruits of their endeavor. City of definite channels.” Cal. Water Code § 10752. Santa Maria v. Adam, 211 Cal. App. 4th 266, 301 (2012). In addition to natural surface and groundwater sources, As such, it is important to track the source of the water at the sources of water to which a right may attach include issue in order to identify the rights that attach to it and any artificially stored water, recycled water (aka treated applicable use limitations. wastewater), and water imported from distant sources. If the water originates from a source that has been adjudicated (i.e., Location of the Water Use where the rights have been quantified pursuant to a court Identifying the specific location where the water is to be decision), then the court document quantifying and regulating used, in terms of proximity to the source of the water supply, that water must be thoroughly reviewed. is an important initial step in identifying and defining the type beneficial use of groundwater underlying their property of water right at issue, as well as the priority of the use of the for use on overlying . Overlying rights are correlative, water right in relation to water rights held by others. meaning that the native groundwater supplies are shared by all overlying landowners within the groundwater basin. If the supply of groundwater is insufficient for all overlying uses, California categorizes a water right in part based on where each overlying user is entitled to a fair and just proportion the water will be used relative to the location of its source. of the water, and reductions in pumping are shared between California is one of the few western states that continues to the overlying users. Overlying rights are generally senior recognize riparian water rights, although riparian rights are in priority to rights to groundwater used outside the basin. common in the east. Riparian water rights allow the owner Overlying rights are not lost due to nonuse and cannot be of land contiguous to a natural stream to directly divert used outside the groundwater basin. a portion of the naturally available water for reasonable, One issue to be aware of when consulting a client as to their beneficial use on that land. Rancho Santa Margarita v. Vail, riparian and overlying water rights is that those types of 11 Cal. 2d 501, 528 (1938); Cal. Water Code §§ 101, 102. water rights are not quantified absent a court determination, Under California law, a riparian water right arises by virtue but rather allow the use of the amount of water reasonably of ownership of riparian land, which is defined as the smallest needed on the associated real property. This concept is parcel of land contiguous to a watercourse, in a single chain referred to as “correlative” water use, meaning the rights of from the original private owner, that is within the are held in common with all real property-based users of the watershed of the stream. Rancho Santa Margarita, 11 Cal. water source. This means that whenever there is a water 2d at 529; Boehmer v. Big Rock Dist., 117 Cal. 19, shortage, the water is shared by all users regardless of their 26–27 (1897). It entitles the landowner to use a correlative specific location on the watercourse or in the basin, or when share of the water flowing past his or her property but does their use of that water began. not entitle a water user to engage in artificial storage of the water for longer than 30 days, or to divert water to storage in a reservoir for use in the dry season. Cal. Code Regs., Appropriative Water Rights tit. 23, § 658; Colorado Power Co. v. Pacific Gas & Electric In contrast with riparian and overlying water rights, water Co., 218 Cal. 559, 565 (1933) (“seasonal storage [is] not a transported away from its source for use on land that is not riparian use”). Generally, riparian rights are senior to other adjacent to the surface water source or at a location outside rights; thus, in times of shortage, riparian water right holders the watershed or groundwater basin generally falls under are entitled to take and use water on their land before other a different category of water rights, and thus is subject to a water right holders are entitled to any. City of Barstow v. distinct set of rules and regulations. In California, this use is Mojave Water Agency, 23 Cal. 4th 1224 (2000); Cal. Const., categorized as an “appropriative” water right. Appropriative art. X, § 2; Pleasant Valley Canal Co. v. Borror, 61 Cal. App. water rights: 4th 742, 776 (1998); Peabody v. City of Vallejo, 2 Cal. 2d • Are generally junior to riparian and overlying rights (which 351, 352 (1935). Riparian rights cannot ordinarily be lost means they can only be exercised when there is surplus through nonuse, and no state-issued permit is required to water after all reasonable and beneficial overlying and exercise the right. riparian needs are met) It is important to note that riparian water rights can be • Are subject to the doctrine of prior appropriation which severed from the water source through subdivision and lose means that priority is determined as of the date the use their riparian nature as to the subdivided parcel that does not began or a permit was obtained adjoin the watercourse. Therefore, it is crucial to determine • Can be used away from where they originate the boundaries of the riparian parcel and examine the chain of title. • Can be lost through nonuse –and– • May be subject to the state permitting authority Overlying Water Rights There are specific considerations to keep in mind if the right Similar to a riparian right is what is referred to in California at issue is an appropriative right, including that, as between as an overlying water right, which is the right to extract appropriators, the “first in time, first in right” rule governs and use groundwater on land overlying a groundwater and that burden of proof is on the appropriator to prove that basin. An overlying right attaches to the land overlying a a surplus exists beyond the needs of those holding prior and groundwater basin. Landowners with real property overlying paramount rights. a groundwater basin have the right to the reasonable and Permitting Considerations unreasonable method of use of water be prevented, and One further layer of complexity in California, and several the conservation of such waters is to be exercised with a other states, is that when permitting systems were view to the reasonable and beneficial use thereof in the established, existing uses were allowed to continue without interest of the people and for the public welfare. permits. In California, for example, when examining Cal. Const., art. X, § 2. There is no right in the unreasonable appropriative water rights associated with surface water, use of water. Other states also have similar limitations it is crucial whether the use of the water began before or applicable to all water rights in order to prevent the wasteful after 1914, the year that the California Water Commission use of this limited . Act became effective. Pre-1914 appropriative surface water rights are only subject to limited regulation by the California By way of contrast, Oregon and Washington regulate water State Water Resources Control Board (State Board). The rights quite differently from California. Under Oregon law, holder of a pre-1914 appropriative surface water right may for example, there is no distinction under the law between change the place of use, purpose of use, or point of diversion surface water and groundwater. Instead, all water within without obtaining approval from the State Board, and without the state “from all sources” belongs to the public. Or. Rev. affecting the right to such water, so long as others are not Stat. § 537.110. Unless a use exemption applies, all water injured by the change. Cal. Water Code § 1706. The burden users must first obtain a permit, certificate, or from is on the person claiming injury to prove the injury. Barnes v. the state’s Water Resources Department to use or store Hussa 136 Cal. App. 4th 1358, 1366 (2006). An injury cannot water from any source and regardless of where the water be established where the appropriator’s water rights predate is to be used. The priority of the water right is determined the rights of those claiming the injury. San Bernardino v. based on the date of the water permit application under the Riverside, 186 Cal. 7, 28 (1921). doctrine of prior appropriation, and all water use, including water use exempt from the permit requirement, is subject Conversely, since 1914, water rights can only be acquired to the “beneficial use” limitation, similar to the limitation through an application for a permit to appropriate water to in California. Or. Rev. Stat. § 537.120. However, neither the State Board. Cal. Water Code § 1250. The application a water right permit nor a certificate guarantees water must: for the appropriator. Or. Rev. Stat. §§ 537.250, 537.270. • Demonstrate that water is available to be appropriated Continuity of the water use is critical in Oregon. Water right certificates continue to be valid as long as the water is used • Demonstrate that the appropriation will not harm other in accordance with the provisions of the water right at least legal users of water once every five years. Or. Rev. Stat. § 540.610. Any portion • Specify the place of use and point of diversion –and– of the water right certificate that is not exercised for five • Describe the intended beneficial use(s) consecutive years gives rise to a rebuttable presumption that the right was forfeited. Id. The burden is on the applicant to provide “sufficient information” demonstrating a “reasonable likelihood” that By the same token, Washington requires permitting from the water is available for appropriation. Cal. Water Code Washington State Department of Ecology, for both surface § 1260. The application process includes publication, a water and groundwater, unless an exemption applies. In 1917, public comment period, and a hearing process to resolve Washington adopted a regulatory permit system to manage any disputes. If water is appropriated and diverted during surface water. See W. Side Irrigating Co. v. Chase, 115 Wash. times of shortages, the right may potentially ripen into a 146, 149–50 (1921). The State of Washington requires most prescriptive right if certain elements are met. Therefore, it diversions of surface water to be permitted. After the permit is important to consider the timing of the water use in the has been approved, the permit holder must perfect the water context of the overall local water supply in order to better right through the actual, physical appropriation of water for advise landowners on the nature and extent of their water the proposed use in order to receive a certificate evidencing right. a vested right. Wash. Rev. Code Ann. §§ 90.03.320, 90.03.330. When looking into water rights in Washington, It is important to note that all water use in California is care must be taken to research whether the permit holder subject to the constitutional doctrine of reasonable and has in fact exercised his or her right under the permit beneficial use. Under the California Constitution, water because failure to do so may result in the cancellation of resources must be put to the permit. Wash. Rev. Code Ann. §§ 90.03.250, 90.03.320. beneficial use to the fullest extent of which they Though Washington recognizes riparian rights, these rights are capable, and the waste or unreasonable use or were lost if they had not beneficially used before 1932. In re Deadman Creek in Spokane County, 103 these types of uses must still conform with the beneficial Wn.2d 686 (1985). Just as in Oregon, water rights can be use requirement and remain subject to the priority system. lost under the “use it or lose it” doctrine. Thus, if the water Wash. Rev. Code Ann. §§ 90.44.020, 90.44.040, 90.44.060. right holder does not maintain the actual beneficial use of The water right holder must still provide information such the diverted water, that holder may lose their water right. as “the means for and the quantity of that withdrawal” to the A water right holder relinquishes that right to the State Department of Ecology. Wash. Rev. Code Ann. § 90.44.050. of Washington if the water is not used beneficially for five consecutive years. City of Union Gap v. Dep’t. of Ecology 148 Water Rights Associated Wn.App. 519, 526–27 (Wash. Ct. App. 2008). with Real Estate Similar to the Surface Water Code, Washington regulates rights to groundwater under a permitting system and In California, both riparian and overlying water rights attach follows the prior appropriation doctrine. Wash. Rev. Code to and run with the land, unless specifically transferred Ann. §§ 90.44.020, 90.44.050. However, permitting of (leased or sold) separate from the land. Therefore, it is groundwater, unlike surface water, is constrained by the important to examine the official recorded chain of title of feasibility and reasonableness in pumping water from a the land in order to determine whether the right was severed particular . Wash. Rev. Code Ann. § 90.44.070. As in a prior transfer of title. A water right sold separately from such, a senior groundwater right holder is not entitled to the land may be permanently severed from the land, meaning absolute protection “in either his historic water level or his the right may have been lost. Conversely, appropriative rights historic means of diversion.” Baker v. Ore-Idea , Inc., do not run with the land and can be owned, transferred, and 95 Idaho 575, 584 (1973). As a result, a senior groundwater used independent of land ownership. right holder may need to modify their diversion system to accommodate for the changing aquifer levels. In Oregon, and notwithstanding the above, surface water abutting a property and used prior to the enactment of the The above comparison of California, Oregon, and Washington Oregon water code (pre-1909), and continuously since then, laws underscores the complexity associated with determining may have developed into a vested water right which transfers water rights and the importance of the location of use in with the property. making this determination. In Washington, a perfected right to use the water may attach to the land, but additional steps need to be taken to transfer The Historical and Intended Use of the Water the right when land ownership changes. Wash. Rev. Code Generally, water right permits specify the uses to which Ann. § 90.03.380; United States v. Ahtanum Irr. Dist., 124 F. the water may be put. A change in the place of use or type Supp. 818, 827–28 (E.D. Wash. 1954); Neubert v. Yakima- of use generally requires a new approval by the state and Tieton Irrigation Dist., 117 Wn.2d 232, 237 (1991). If there local regulatory authority. Therefore, water permits must be is an express reservation (i.e., where the grantor of the land reviewed carefully to check for any such limitations. reserves in writing rights to the water, whether in whole or Conversely, some water uses are entirely exempt from in part), water does not pass with the land. Drake v. Smith, the permit requirement in order to encourage those uses 54 Wn.2d 57, 61 (1959); Tedford v. Wenatchee Reclamation or reduce the regulatory burden as to certain water right Dist., 127 Wash. 495, 499–500 (1923); Geddis v. Parrish, holders. For example, Washington recognizes exemptions 1 Wash. 587, 591 (1889). Furthermore, a water right can from the permitting system for groundwater, such as be assigned to a third party. See Wash. Rev. Code Ann. § distribution and use of generated from 90.03.310. However, the new water rights holders must a wastewater treatment facility. Wash. Rev. Code Ann. § then notify and receive approval from the Department of 90.46.120; Jensen v. Dep’t of Ecology, 102 Wn.2d 109, 113 Ecology if they wish to change the use of water (e.g., place (1984); see Hillis v. Dep’t of Ecology, 131 Wn.2d 373. Other of use, purpose of use, time of use, or point of diversion or uses exempt from the Washington permit requirement withdrawal). Wash. Rev. Code Ann. §§ 90.03.395, 90.03.397, include water for stock watering, watering of lawns or 90.44.100. Upon receiving the approval of the change of use noncommercial gardens not exceeding one-half acre in area, for the water rights, the rights then attach to the new parcel single or group domestic uses not exceeding five thousand of land and do not lose its priority. R.D. Merrill Co. v. Pollution gallons a day, and industrial uses not exceeding five thousand Control Hearings Bd., 137 Wn.2d 118, 125–26 (1999); gallons a day. Wash. Rev. Code Ann. § 90.44.050. However, Schuh v. State, 100 Wn.2d 180, 185 (1983). Conversely, in Oregon, water rights under a permit, Acquiring Water Rights from certificate, or license may be temporarily or permanently the State transferred, subject to the Oregon Water Resources Department approval. Or. Rev. Stat. §§ 540.510, 540.520, Although some water rights do not require a permit in 540.523, 540.532, 540.580, 539.710; OAR 690.019, order to perfect or exercise the right (such as pre-1914 690-380, 690-385. To be binding, any such transfer must riparian water rights and groundwater rights in California, be recorded with the Water Resources Department. Or. for example, or specific exempt water uses in Washington), a Rev. Stat. § 537.220. The Water Resources Department water right permit is generally required, irrespective of land may request proof of ownership of land specified in the ownership. The process to acquire a water right permit varies permit or license, and other information prior to entering procedurally from one state to another, but generally follows the in its records. Id. Public notice, protest, a similar structure that commences with submitting an and hearing requirements apply. Or. Rev. Stat. §§ 537.225, application form and supporting documentation to the state 537.227. Unlike the free market approach adopted in agency in charge of regulating water use in that state. Often, California, the value of the water right in Oregon may not a public notice and hearing process is required as part of the exceed the owner’s cost of perfecting the right in accordance permit approval process, followed by periodic reporting of with the Oregon Water Rights Act. Or. Rev. Stat. § 537.390. water use (assuming the permit was approved). When negotiating a water right transfer, take care to make When assisting a landowner in obtaining a water right permit, sure the transfer instruments include language that covers it is best to check with the regulatory agency on the length of the transfer of not just the permitted or adjudicated right, time needed to complete the process completed and whether but also of any unused amounts of water that the owner certain water uses are eligible for an expedited or shortened may be allowed to carry over from year to year under local process. For example, in California, it may take a decade to laws, and any unused amounts of water that may have been obtain a water right permit through the regular permitting stored under that right in the groundwater basin or in a process, but recently adopted regulations allow for an reservoir. If the water right owner has constructed certain expedited process (two to five years) to obtain a water right wells, pipelines, or water treatment systems in order to use permit for purposes of complying with certain components of or transport its water, the transfer documents must provide SGMA. for the transfer of those facilities and equipment, if that is something that the new owner is interested in acquiring as Transfer of Water Rights well. In certain situations, water use is subject to certain assessments with by the GSA, the state, or the Watermaster. among Water Right Holders In those instances, it is important to address any pending accounting issues prior to the transfer of the water right. Depending on water laws specific to each state, water rights that are acquired by virtue of land ownership attach to and run with the land, and therefore automatically transfer with Special Considerations for title upon change of land ownership, without further action Water Rights in California by the parties. Water rights acquired pursuant to a state- issued permit, unless specifically restricted in the language As stated earlier, California has a very complex water law included in the permit itself, are transferable and assignable, system. One of its unique aspects is the legal distinction but the transfer does not occur automatically. In those between surface water and groundwater and the recent instances, the parties will need to submit specific forms to the regulation of groundwater. Due to climate change, the state issuing agency to inform them of the change of ownership. is also experiencing increasing in hydrologic stress leading to water supply shortages. The combination of the two In California, for example, a simple change of owner present a challenge as well as new opportunities for water name must be submitted to the State Water Resources right holders. Water supply reliability has spurred innovation Control Board to update the record. If the right involves an among farmers and water suppliers in terms of building adjudicated groundwater right, certain forms will need to be redundancy into their supplies wherever possible. It has also submitted to the entity responsible for enforcing the court given rise to opportunities (commonly referred order (aka, Watermaster), in order to effectuate the transfer. to as water markets) in high water demand areas such as the The value of the water right is negotiated by the parties Central Valley and the Central Coast regions. Landowners without state interference. concerned about their ability to maximize the use of their water right must stay informed as to changes in regulation Those are only some of the challenges water law attorneys impacting surface and groundwater supplies or imposing fees face when advising landowners on their water rights. It is or use cutbacks. critically important to take a holistic approach when analyzing water rights, looking at state and local regulations where One of the challenges in doing so is the fact that the law the real estate is located as well as where the water use is is continuously evolving and that the authority to regulate applied. water use is not exclusive to one agency, but rather decentralized whereby authority is granted to local agencies (such as a GSA) to regulate water use while other, sometimes conflicting, regulations are issued at the state level.

Eric L. Garner, Partner, Best Best & Krieger LLP Eric L. Garner is Managing Partner at Best Best & Krieger LLP, practicing water rights and supply law. He works on surface water and groundwater issues throughout California. For the past two decades, he has worked extensively on groundwater matters. He represented the lead parties in the Santa Maria and Antelope Valley groundwater adjudications, is involved in the Las Posas and Ventura River adjudications, and also was involved in the Mojave Groundwater adjudication. He was involved in drafting the Sustainable Groundwater Management Act and testified before the state Senate Committee on Natural Resources & Water on adjudication reform legislation. He has drafted water laws in , Trinidad, and Pakistan and worked with the United Nations Environmental Programme on incorporating environmental issues into water laws, the World Bank on groundwater issues in the Middle East and North Africa, and was the first American Chair of the International Bar Association’s Water Law Committee.

Eric co-authored “California Water,” “California Water II,” and “California Water, Third Edition,” and is an adjunct law professor at the University of Southern California Gould School of Law.

Maya Mouawad, Attorney, Best Best & Krieger LLP Maya Mouawad is an attorney with the Environmental Law & Natural Resources practice group at Best Best & Krieger LLP. She is focused on matters involving water rights, as well as complex commercial real estate development transactions including Brownfield development. Maya is actively involved in adjudication of groundwater rights in basins located in Ventura and Kern counties. She serves as assistant general counsel for the Hi Desert Water District and special counsel for several public agencies and special districts throughout the Central Valley and Southern California. She previously served as assistant general counsel for the Palmdale Water District, deputy city attorney for the City of San Dimas, and special counsel for the Carson Reclamation Authority. In 2019, Maya completed a Water Education Foundation Water Leaders Class, a competitive one-year program for professionals working in the water field in diverse capacities, designed to deepen their knowledge of California water and enhance leadership skills. Prior to attending law school, Maya spent more than 14 years working in the public and private sectors. This mix of public-private sector experience provides Maya with a thorough understanding of client issues and allows her to formulate out-of-the-box solutions.

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